Protecting Your Rights as a Future Resident of the U.S.
If you are considering relocating to the U.S., and you have a sizeable net worth you should be considering potential immediate or future exposure to the U.S. estate tax. You may have already spoken to a domestic estate planning attorney and been advised that any trust settled five years before becoming a U.S. tax resident may not protect you from income taxes on the assets placed in trust. While this is true, this is not the whole story.
As a soon-to-be U.S. resident, you have the option to synthetically “reset” your net worth with a Pre-Domicile Dynasty Trust. This is a tax advantage that U.S. citizens can only dream of since it is not available to them. We recommend not missing this golden opportunity. The trust is not recognized for income tax purposes, which is actually a good thing. At Castro & Co., we can further explain the full benefits of establishing a Pre-Residency Trust during our free initial consultation.
For more information about pre-residency estate planning, contact our firm at (888) 595-5088!
Defining Residency for Income & Estate Tax Purposes
The term residency is defined differently for income and estate tax purposes. For income tax purposes, residency is determined by straightforward tests such as the substantial presence test that calculates your days of physical presence in the country. For estate tax purposes, however, residency is defined as domicile. Domicile is intensely subjective but looks to objective factors such as the location of the family as well as economic relations to the country. Because domicile is more subjective, it is more prone to planning. That is where our firm comes in.
The best approach for your case truly depends, for the most part, on where your assets are located. If all of your assets and wealth will be transferred to the U.S., you will want to be considered a U.S. domiciliary to obtain the $11.2m lifetime estate tax exemption. However, if all your assets and wealth will remain outside of the U.S., we will explore planning your domicile to remain outside of the U.S. and structure any U.S. asset ownership via an offshore entity to avoid direct ownership; an individual can pass away and be subject to the U.S. estate tax but a company cannot.
The international estate planning attorneys at Castro & Co. can resolve these daunting issues and structure a plan to ensure that disastrous, unintended tax consequences do not befall you.
Benefits of Pre-Domicile Estate Planning
Let us assume your net worth is $25m. Upon establishing U.S. domicile, you would already have a taxable estate. With a pre-domicile Dynasty Trust, you could transfer $20m to the trust and enter the U.S. with an estate of only $5m. The $20m would forever escape the U.S. estate tax. Furthermore, if married, your estate could expand an additional $11m and you would still be comfortably under the $22.4m lifetime exemption. In effect, the pre-domicile Unlimited Trust allows you to reset your net worth for estate tax purposes.
International estate planning is incredibly complex and intricate. You need someone with the knowledge and experience to help you navigate the laws. Attorney’s fees for tax and estate planning, when viewed as investments, have the highest rates of return with the fastest returns on investment. Typically, the planning pays for itself in the first year with all future years generating profit in the form of tax savings. This is why you never hear anyone complain about the fees paid for estate planning.
Options If You Are Already a U.S. Resident
With our firm, there is rarely a scenario where there are no planning options. Even if you have already been a U.S. tax resident for several years, you can still create a pre-domicile Dynasty Trust. Let us explain.
As described above, the definition of residency for income tax purposes and estate tax purposes differs in the U.S. Tax Code. We can use this distinction to our advantage. If you arrived in the United States three years ago, it is likely that you have been a tax resident for three years. However, you can be in a country for many years without ever establishing domicile. Therefore, you are still eligible to create the pre-domicile Dynasty Trust.
Other Pre-Domicile Issues That Should Be Considered
You may not be a U.S. citizen, U.S. resident, or U.S. domiciliary, but you may still need to consult with one of our international estate planning attorneys if you directly own assets in the U.S. Any individual worldwide is subject to the U.S. estate tax on assets located in the U.S. Without proper ownership structures or restructuring existing ownership, the U.S. estate tax will apply to your U.S. assets.
Are you planning to immigrate to the U.S.? Schedule a free confidential consultation with one of our international estate planning attorneys at (888) 595-5088. We serve clients worldwide from our tax law firm in Washington DC, New York, Miami, Dallas, and Los Angeles.
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